Time and information have also emerged as two new factors in modern economics. Of these, labor and capital factors are considered the most critical to the production processes. This episode of our Economic Lowdown Podcast. If you own a plot of land and decide to build factory on it you are supplying that land to your firm where you are the household and as a result your compensation (profit you will get from operating the company) will include the rent from land as well as return on capital you supply that firm. What are the 4 factors of production The four production factors are land, capital, labor, and entrepreneurship/enterprise. Economists divide the factors of production into four categories: land, labor, capital, and entrepreneurship.
This is really just obscured in modern world and hidden under all the legal arrangements but in the end there can be no company that is just owned by itself there must be some household behind it. The four Factors of Production are Land, Labor, Capital, and Entrepreneurship, and these are the things that create all of the goods and services that make up an economy. Labor: Initially only Mark Zuckerberg himself was working on his own idea of this social network. Hence in the end it always must be some household providing that capital or land (by providing equity to the firms). Adam Smith, also known as the Father of Economics, associated the production concept with the creation of material goods only. Modern economics considers time and information also part of these factors. household) that owns those companies.įrom economic perspective it does not really matter how long the paper chain between company and some household is, only thing that matters is that it exists. The four common production factors in economics are land, capital, labor, and entrepreneurship/enterprise.
In the end after some chain of legal ownership there must be some physical person (i.e. A building or a machine cannot own property. limited company for example) in the end any company has to be owned by household. All firms are in the end owned by some household.Įven if legally you can have both physical and legal persons (i.e. While it’s true that firms can pay other firms for land or capital (and in fact firms can pay another firms for entrepreneurship - you can hire consulting firms, and there are also firms that ‘borrow’ workers to other firms).
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